Slovakia hikes VAT to among EU’s highest

Slovak Prime Minister Robert Fico on Wednesday, September 18, reversed decades of opposition to tax hikes as his government amended VAT laws, effective 1 January, 2025.

As recently as April, the leader of Slovakia’s nominally left-wing Smer-SD party, positioned himself as a champion of low-income earners, saying “I oppose increasing VAT, and we must find other ways to support public finances.” However, months later, the Fico government has now hiked the VAT rate from 20% to 23%, citing Slovakia’s public debt, budget deficit and the need to align its tax system with EU standards, putting it close to the EU’s highest standard VAT rate, of 27%, in Hungary.

Slovakia’s preferential VAT rate for essential goods, including food items and medication, will also rise, from 10% to 19%, accounting firm Price Waterhouse Cooper (PwC) noted. As well as impacting consumers, the hike will affect businesses, and international traders in particular, who will need to adjust their VAT compliance strategies.

Concessions for small businesses

According to PwC, “in this context, Member State annual turnover (EUR 62,500 in the current calendar year and EUR 50,000 in the previous calendar year) and Union annual turnover (EUR 100,000) are introduced. Taxable persons who do not achieve these turnovers will be allocated a special VAT ID with a suffix ‘EX’ that will allow them to deliver goods and services across the entire EU with VAT exemption – i.e. as a taxable person that is not a VAT payer,” it added.

Under the new amendment, in alignment with EU law, the rational purchase of a leased item will be categorised as a supply of goods. VAT will be charged upfront on the total value of a lease, rather than on instalments over the term.

“Under EU law and the established judicature of the Court of Justice of the European Union, the VAT treatment of the transfer of goods based on a lease agreement with the agreed right to purchase the leased item will be changed if making use of the purchase right is economically the only rational choice for the lessee at the time of the conclusion of the lease agreement,” PwC explained.

The amendment also introduces a reverse charge mechanism for goods imports, stricter penalties for delayed VAT registration, and new VAT rules for online entertainment services.

Slovak PM blames opposition

Fico, who regained power in October 2023, justified the VAT hike, saying “We inherited a divided and crippled state but when consolidating we think of the common people’s expenses. There is no decent word for what the wise opposition people left behind them. Slovakia is in the most difficult financial situation in its history.

Ludovit Odor MEP, who served as prime minister of Slovakia from May-October 2023, said in an interview that the increase in VAT will bring dramatic price increases for everyone: pensioners, mothers and the self-employed. “The Fico government is taking the absolutely easy road for itself and the hardest road for the people,” Odor said, adding that it has “given up on all the people of Slovakia”.

“We will not be silent about it, because the responsibility is today’s opposition led by Matovic, Heger, Simeckovy, Odor. Their political outcry today sounds ridiculous and embarrassing because their decisions have brought Slovakia to the edge of a cliff from which we must save it today,” Fico added.